U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended February 28, 2001
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Commission File Number 2-91218-B
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International Electronics, Inc.
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(Exact name of small business issuer as specified in its charter)
Massachusetts 04-2654231
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
427 Turnpike Street, Canton, Massachusetts 02021
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(Address of principal executive offices) (Zip Code)
(781) 821-5566
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(Issuer's telephone number, including area code)
Not applicable
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(former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES X NO
--- ---
1,539,980 common shares were outstanding at March 29, 2001.
INTERNATIONAL ELECTRONICS, INC. AND SUBSIDIARIES
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Index
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Part I. Financial Information: Page No.
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Item 1: Financial Statements (unaudited)
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Condensed Consolidated Balance Sheets, February 28, 2001
and August 31, 2000 2
Condensed Consolidated Statements of Income, three and six
months ended February 28, 2001 and February 29, 2000 3
Condensed Consolidated Statement of Shareholders' Equity,
six months ended February 28, 2001 4
Condensed Consolidated Statements of Cash Flows, six
months ended February 28, 2001 and February 29, 2000 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2: Management's Discussion and Analysis of
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Financial Condition and Results of Operations 9-13
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Part II. Other Information:
Item 4: Submission of Matters to a Vote of Security Holders 14
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Item 6: Exhibits and Reports on Form 8-K 14
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Signature 14
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INTERNATIONAL ELECTRONICS, INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED BALANCE SHEETS
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(unaudited)
Feb. 28, 2001 August 31, 2000
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ASSETS
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Current assets:
Cash and equivalents $ 1,219,085 $ 1,642,359
Accounts receivable, net 1,561,612 1,135,128
Inventories 1,183,486 831,993
Deferred income taxes 364,000 348,000
Other current assets 228,685 250,097
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Total current assets 4,556,868 4,207,577
Equipment, furniture and improvements, net 550,226 505,101
Other assets:
Deferred income taxes 76,000 76,000
Other 11,950 11,950
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87,950 87,950
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$ 5,195,044 $ 4,800,628
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities:
Accounts payable $ 872,175 $ 444,884
Accrued expenses 1,087,331 1,118,401
Income taxes 26,000 15,000
Current portion of long-term obligations 168,535 172,336
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Total current liabilities 2,154,041 1,750,621
Long-term obligations, less current portion 142,144 188,543
Shareholders' equity:
Common stock, $.01 par value:
Authorized 5,984,375 shares
Issued 1,574,980 and 1,570,813
shares, respectively 15,750 15,708
Capital in excess of par value 4,858,125 4,853,991
Accumulated deficit (1,936,372) (1,969,591)
Less treasury stock, at cost:
35,000 shares (38,644) (38,644)
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Total shareholders' equity 2,898,859 2,861,464
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$ 5,195,044 $ 4,800,628
=========== ===========
See notes to unaudited condensed consolidated financial statements.
-2-
INTERNATIONAL ELECTRONICS, INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
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(unaudited)
Three months ended Six months ended
------------------------------ ------------------------------
Feb. 28, 2001 Feb. 29, 2000 Feb. 28, 2001 Feb. 29, 2000
-------------- -------------- -------------- --------------
Net sales $2,597,690 $2,735,722 $5,337,142 $5,450,651
Cost of sales 1,464,439 1,459,551 2,936,232 2,935,738
---------- ---------- ---------- ----------
Gross profit 1,133,251 1,276,171 2,400,910 2,514,913
Research and development costs 249,759 306,727 537,852 579,471
Selling, general and
administrative expenses 873,795 894,818 1,868,457 1,818,835
---------- ---------- ---------- ----------
Income (loss) from operations 9,697 74,626 (5,399) 116,607
Interest expense (7,476) (5,409) (15,913) (10,684)
Other income 20,094 18,512 49,531 34,959
---------- ---------- ---------- ----------
Income before taxes 22,315 87,729 28,219 140,882
Benefit (provision) for income taxes:
Current (2,300) (18,000) (11,000) (27,000)
Deferred 27,000 (19,000) 16,000 (29,000)
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24,700 (37,000) 5,000 (56,000)
---------- ---------- ---------- ----------
Net income $ 47,015 $ 50,729 $ 33,219 $ 84,882
========== ========== ========== ==========
Net income per share:
Basic $ .03 $ .03 $ .02 $ .06
Diluted .03 .03 .02 .05
========== ========== ========== ==========
Shares used in computing
net income per share:
Basic 1,539,980 1,524,968 1,538,217 1,523,539
Diluted 1,662,544 1,713,093 1,672,146 1,683,049
========== ========== ========== ==========
See notes to unaudited condensed consolidated financial statements.
-3-
INTERNATIONAL ELECTRONICS, INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
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(unaudited)
Common Stock Capital in Treasury Stock
----------------- excess of Accumulated ----------------
Shares Amount par value Deficit Shares Cost Total
------ ------- --------- ------- ------ ---- -----
Balances,
September 1, 2000 1,570,813 $15,708 $4,853,991 ($1,969,591) 35,000 ($38,644) $2,861,464
Exercise of
stock options 4,167 42 4,134 - - - 4,176
Net income - - - 33,219 - - 33,219
--------- ------- ---------- ----------- ------ -------- ----------
Balances,
February 28, 2001 1,574,980 $15,750 $4,858,125 ($1,936,372) 35,000 ($38,644) $2,898,859
========= ======= ========== =========== ====== ======== ==========
See notes to unaudited condensed consolidated financial statements.
-4-
INTERNATIONAL ELECTRONICS, INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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(unaudited)
Six months ended
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Feb. 28, 2001 Feb. 29, 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 33,219 $ 84,882
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 154,577 167,292
Deferred income taxes (16,000) 29,000
Changes in operating assets and liabilities:
Accounts receivable (426,484) (396,426)
Inventories (351,493) 33,608
Other current assets 21,412 (77,263)
Income taxes 11,000 24,125
Accounts payable and accrued
expenses 396,221 352,883
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Net cash provided by (used in)
operating activities (177,548) 218,101
CASH FLOWS FROM INVESTING ACTIVITIES:
Net purchase of equipment,
furniture and improvements (199,702) (144,106)
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Net cash used in investing
activities (199,702) (144,106)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term obligations 42,268 169,467
Payments on long-term obligations (92,468) (54,047)
Issuance of common stock 4,176 24,350
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Net cash provided by (used in) financing activities (46,024) 139,770
CASH AND EQUIVALENTS:
Net increase (decrease) during period (423,274) 213,765
Balances, beginning of period 1,642,359 1,327,032
---------- ----------
Balances, end of period $1,219,085 $1,540,797
========== ==========
See notes to unaudited condensed consolidated financial statements.
-5-
INTERNATIONAL ELECTRONICS, INC. AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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(unaudited)
A. Financial Statements:
---------------------
In the opinion of the Company, the unaudited condensed consolidated
financial statements contain all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial position
as of February 28, 2001 and the results of operations for the three and six
months ended February 28, 2001 and February 29, 2000.
Certain disclosures normally included have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission, although the Company believes the disclosures are adequate to
make the information presented not misleading. It is suggested that these
financial statements be read in conjunction with the financial statements
and notes thereto included in the Company's annual report on Form 10-KSB
for the year ended August 31, 2000.
B. Principles of Consolidation:
----------------------------
The accompanying condensed consolidated financial statements include the
accounts of the Company, its majority owned subsidiary, Ecco Industries,
Inc. and its wholly owned subsidiary, International Electronics Europe
Limited. All material intercompany transactions, balances and profits have
been eliminated.
C. Income Taxes:
-------------
The Company provides for income taxes at the end of each interim period
based on the estimated effective tax rate for the full fiscal year.
Cumulative adjustments to the tax provision are recorded in the interim
period in which a change in the estimated annual effective rate is
determined.
D. Significant Estimates and Assumptions:
-------------------------------------
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
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INTERNATIONAL ELECTRONICS, INC. AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(continued)
(unaudited)
E. Net Income per Share:
---------------------
Basic net income per share is computed by dividing net income by the
weighted average common shares outstanding during the periods. Diluted net
income per share is computed by dividing net income by the weighted average
number of common and dilutive option and warrant shares outstanding based
on the average market price of the Company's common stock (under the
treasury stock method).
The following table sets forth the computation of the weighted average
number of shares used in calculating basic and diluted net income per
share:
Three months ended Six months ended
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Feb. 28, 2001 Feb. 29, 2000 Feb. 28, 2001 Feb. 29, 2000
------------- ------------- ------------- -------------
Shares used in computation:
Weighted average
shares outstanding for
basic income per share 1,539,980 1,524,968 1,538,217 1,523,539
Effect of dilutive option
and warrant shares 122,564 188,125 133,929 159,510
------------- ------------- ------------- -------------
Total shares for diluted income
per share 1,662,544 1,713,093 1,672,146 1,683,049
============= ============= ============= =============
The calculations for diluted net income per share did not include an aggregate
out of the money options and warrants of 60,500 and 371 for the three months
ended February 28, 2001 and February 29, 2000, respectively.
-7-
INTERNATIONAL ELECTRONICS, INC. AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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(continued)
(unaudited)
F. Long-term Obligations:
----------------------
Long-term obligations are summarized as follows:
Feb. 28, 2001 Aug. 31, 2000
-------------- --------------
Capitalized lease obligation, 11.6%
due through April, 2001 $ 2,359 $ 5,728
Equipment line of credit, 8.5%-9.5% (Note G) 303,594 347,424
Collateralized 8% equipment loan,
final payment due Nov., 2001 4,726 7,727
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310,679 360,879
Less current portion (168,535) (172,336)
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$ 142,144 $ 188,543
========= =========
The future principal payments on long-term obligations are $168,535 (2002),
$118,783 (2003) and $23,361 (2004).
G. Bank Arrangements:
-----------------
As of February 28, 2001, the Company has a bank demand line of credit that
provides for borrowings up to $1,000,000 and an available $346,000
equipment line of credit. The equipment line of credit is at the bank's
prime rate of interest and the demand line of credit is 1/2 percent below
the bank's prime rate of interest. All of the Company's assets are
collateralized under these arrangements. The credit agreements contain
certain restrictive covenants including covenants limiting the payment of
dividends, a required minimum debt to tangible net worth ratio, and bi-
annual or annual net income. As of February 28, 2001, no borrowings have
been made under the demand line of credit, and the Company has $303,594
outstanding as equipment debt, which is payable in monthly installments
through February 2004 (Note F).
-8-
Management's Discussion and Analysis of
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Financial Condition and Results of Operations
---------------------------------------------
Liquidity and Capital Resources
As of February 28, 2001, the Company had working capital of $2,402,827 compared
to $2,456,956 at August 31, 2000. The ratio of current assets to current
liabilities was 2.1 at February 28, 2001 and 2.4 at August 31, 2000. The debt
to equity ratio was .8 at February 28, 2001 and .7 at August 31, 2000. The
decrease in current ratio and increase in debt to equity ratio are primarily due
to an increase in accounts payable.
Net capital expenditures were $199,702 and $144,106 for the six months February
28, 2001 and February 29, 2000, respectively. The Company has no current
commitments for any material capital expenditures, but the Company anticipates
up to $420,000 in capital expenditures for the purchase of office and
manufacturing equipment, regulatory testing and tooling costs over the next
twelve months.
Management believes that its current cash position, together with internally
generated funds at present sales levels and its available bank financing, will
provide adequate liquidity to satisfy its cash requirements for the next twelve
months. Depending upon whether or not sufficient revenue and working capital is
generated from profitable operations, the Company may require additional
external funding. There is no assurance that profits will be generated, or that
additional external funding will be obtainable, if such a need should arise.
Results of Operations
Net sales for the second quarter of fiscal 2001 decreased 5% as compared to the
second quarter of fiscal 2000. Net sales for the first six months of fiscal
2001 decreased 2% as compared to the first six months of fiscal 2000. The
decrease in sales for the second quarter and first six months of fiscal 2001
reflects decreases in glassbreak detector and keypad sales, partially offset by
an increase in OEM custom and PowerKey(TM) product sales. The ratios of gross
profit to sales were 44% and 45% for the second quarter and six months ended
February 28, 2001, respectively, compared to 47% and 46% for the comparable
periods of fiscal 2000. The decreases in the gross profit percentages in fiscal
2001 are due to lower sales volume combined with changes in product mix.
Research and development expenses were $249,759 and $537,852 for the second
quarter and six months ended February 28, 2001, respectively, compared to
$306,727 and $579,471 for the comparable periods of fiscal 2000. The decrease
in these discretionary costs is primarily due to lower development project
costs.
As a percentage of net sales, selling, general and administrative expenses were
34% and 35% for the second quarter and six months ended February 28, 2001,
respectively, as compared to 33% for both the three and six month periods of
fiscal 2000. The increase in costs as a percentage of net sales in the second
quarter is the result of a decline in sales offset in part by a reduction in
discretionary spending. The increase in costs as a percentage of net sales for
the first six months of fiscal 2001 is primarily due to an increase in wages and
related benefits and a decline in sales.
-9-
The current provision for income taxes for the second quarter and first six
months of fiscal 2001 represents expenses for state and federal income taxes,
after utilization of available federal net operating loss carryforwards.
Recent Accounting Pronouncements
During 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 was not required to be implemented until fiscal year 2000. In June 1999,
the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB No. 133 - an amendment of
FASB No. 133." SFAS No. 137 delayed the original implementation date of SFAS
No. 133 by one year. The Company implemented this statement in the first quarter
of fiscal year 2001 and it did not have a material impact on the Company's
results of operations.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." This
bulletin established guidelines for revenue recognition. The Company's revenue
recognition policy complies with this pronouncement and its implementation did
not have a material impact on the Company's results of operations.
Factors that May Affect Future Results
Information provided by the Company in writing and orally, from time to time may
contain certain "forward-looking" information as this term is defined by: (1)
the Private Securities Litigation Reform Act of 1995 (the "Act") and (2) in
releases made by the Securities and Exchange Commission. These Cautionary
Statements are being made pursuant to the provisions of the Act and with the
intention of obtaining the benefits of the "safe harbor" provisions of the Act.
The Company cautions investors that any forward-looking statements made by the
Company involve risks and uncertainties, which could cause actual results to
differ materially from those projected.
The Company has identified certain risks and uncertainties as factors, which may
impact on its operating results that are detailed below. All of these factors
are difficult for the Company to forecast, and these or other factors can
materially adversely affect the Company's business and operating results for one
quarter or a series of quarters.
Limited Financial Resources and Losses from Operations. The Company has limited
financial resources. It is therefore subject to all the risks generally
associated with a small business having limited financial resources. For the
six months ended February 28, 2001 and the years ended August 31, 2000, 1999 and
1998, the Company had net income of approximately $33,000, $355,000, $555,000,
and $530,000, respectively. There can be no assurance that the Company will
remain profitable. Continued operations after the expenditure of the Company's
existing cash reserves may require additional working capital to be generated by
profitable operations or use of the bank lines of credit and/or additional
financing. There can be no assurance that profits will continue or that
additional external funding will be obtainable, if such a need should arise.
-10-
Dependence on Key Employees. The business of the Company is dependent upon the
efforts of John Waldstein and certain other key management and technical
employees. The loss or prolonged disability of such personnel could have a
significant adverse effect on the business of the Company. The Company
presently maintains a key man life insurance policy of $1,000,000 on John
Waldstein, President and Treasurer.
Limited Design Engineering Staff. The Company is engaged in an industry, which,
as a result of extensive research and development, introduces new products on a
regular basis. Current competitors or new market entrants may develop new
products with features that could adversely affect the competitive position of
the Company's products. There can be no assurance that the Company will be
successful in selecting, developing, manufacturing and marketing new products or
enhancing its existing products or that the Company will be able to respond
effectively to technological changes or product announcements by competitors.
Any failure or delay in these goals could have a material adverse effect on the
Company.
Fluctuations in Sales and Operating Results. The annual growth rates
experienced by the Company are not necessarily indicative of future annual
growth rates. Operating results may also fluctuate due to factors such as the
timing of new product announcements and introductions by the Company, its major
customers and its competitors, market acceptance of new or enhanced versions of
the Company's products, changes in the product mix of sales, changes in the
relative proportions of sales among distribution channels or among customers
within each distribution channel, changes in manufacturing costs, competitive
pricing pressures, the gain or loss of significant customers, increased research
and development expenses associated with new product introductions and general
economic conditions. A limited number of customers have accounted for a
significant portion of sales in any particular quarter. In addition, the
Company typically operates with a relatively small backlog. As a result,
quarterly sales and operating results generally depend on the volume, timing of,
and ability to fulfill orders received within the quarter which are difficult to
forecast. In this regard, the Company may recognize a substantial portion of
its sales in a given quarter from sales booked and shipped in the last weeks of
that quarter. A delay in customer orders, resulting in a shift of product
shipment from one quarter to another, could have a significant effect on the
Company's operating results. In addition, competitive pressure on pricing in a
given quarter could adversely affect the Company's operating results, or such
price pressure over an extended period could adversely affect the Company's
long-term profitability.
The Company establishes its expenditure levels for sales and marketing and other
expenses based, in large part, on its expected future results. As a result, if
sales fall below expectations, there would likely be a material adverse effect
on operating results because only a small portion of the Company's expenses vary
with its sales in the short-term.
Concentration of Customers. The Company has a substantial number of customers
but sells a majority of its products to a small number of large customers. This
concentration of customers may cause net sales and operating results to
fluctuate from quarter to quarter based on major customers' requirements and the
timing of their orders and shipments.
-11-
Sales to the Company's largest customer accounted for approximately 36% of the
Company's total net sales for the fiscal year ended August 31, 2000. There can
be no assurance that the Company's major customers will place additional orders,
or that the Company will obtain orders of similar magnitude from other
customers. The Company's operating results could be materially and adversely
affected if any present or future major customer were to choose to reduce its
level of orders, were to experience financial, operational or other difficulties
that resulted in such a reduction in orders to the Company or were to delay
paying or fail to pay the Company's receivables from such customer.
Competition. Other companies in the industry offer products in competition with
those of the Company. Many of the companies with which the Company competes are
substantially larger, have greater resources and market a larger line of
products. The Company expects competition to increase significantly in the
future from existing competitors and new companies that may enter the Company's
existing or future markets. Increased competition could adversely affect the
Company's sales and profitability. There can be no assurance that the Company
will be able to continue to compete successfully with its existing competitors
or with new competitors.
Lack of Patent Protection. Although the Company has obtained some patent and
copyright protection for certain of its products and software, management
believes that competitors may be able to market certain products similar to
those sold by the Company.
Offshore Production. The Company is currently having some of its finished
products manufactured in Asia. The Company presently maintains certain
manufacturing molds in Asia and has a significant amount of components for some
products manufactured in Asia. There can be no assurance that the Asian
political or economic environment will remain sufficiently stable to allow
reliable and consistent delivery of product.
Dependence on Single Source of Supply. The Company is dependent upon sole
source suppliers for a number of key components and parts used in the Company's
products. There can be no assurance that these suppliers will be able to meet
the Company's future requirements for such components or that the components
will be available to the Company at favorable prices, or at all. Any extended
interruption in the supply or significant increase in price of any such
components could have a material adverse effect on the Company's operating
results in any given period.
Foreign Sales. During the year ended August 31, 2000, the Company's foreign
sales represented approximately 8% of net sales. There may be a reduction in
the Company's foreign sales from the 2000 level in the event of significant
changes in foreign exchange rates or political and economic instability in
foreign countries.
Limited Market for Common Stock. There is a limited market for the Company's
common stock and there can be no assurance that even this limited market will be
sustained. Holders of the Company's common stock may have difficulty selling
their shares or may have difficulty selling them at a favorable price.
-12-
Maintain Listing on NASDAQ. In February 1998, the NASD adopted new more
stringent standards for a company to maintain its stock listing on NASDAQ. The
Company believes that it is in compliance with all NASDAQ SmallCap listing
requirements. However, there can be no assurance that the Company will continue
to meet the NASDAQ standards to maintain its listing on NASDAQ. If the Company
is unable to maintain its listing on NASDAQ, holders of the Company's common
stock may have difficulty selling their shares at a favorable price.
Volatility of Stock Price. The Company's stock price is subject to significant
volatility. If revenues or earnings in any quarter fail to meet the investment
community's expectations, announcements of new products by the Company or its
competitors and other events or factors could have an immediate impact on the
Company's stock price. The stock price may also be affected by broader market
trends unrelated to the Company's performance.
-13-
Part II. Other Information
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Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On March 29, 2001, the Company held its Special Meeting in Lieu of
the Annual Meeting of Shareholders. At the meeting, shareholders
elected the following Director to serve for a three-year term:
Heath Paley Class 1 Director - Term expires in 2004
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
There were no reports on Form 8-K filed for the
three months ended February 28, 2001.
SIGNATURE
---------
Pursuant to the requirements of the Exchange Act, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, who is duly
authorized to sign and is the Chief Financial and Accounting Officer.
International Electronics, Inc.
Date: 4/13/01 /s/ John Waldstein
-------- ---------------------------------------
John Waldstein, President,
Treasurer and Chief Financial and Accounting
Officer and duly authorized to sign.
-14-